PepsiCo Launches Massive Overhaul

Faced With Falling Sales, Will Revamp Brands, Lay Off Thousands, Close Six Plants

NEW YORK (AdAge.com) -- PepsiCo today said it will pour some $1.2 billion over three years into a push that will include sweeping changes to its brands, including what Chairman-CEO Indra Nooyi characterized as a revamp of "every aspect of the brand proposition for our key [carbonated soft drink] brands. How they look, how they're packaged, how they will be merchandised on the shelves, and how they connect with consumers."
Indra Nooyi
Omnicom Group's Arnell Group is working on the redesign of many of the brands' packaging graphics, as well as a redesign of the Pepsi globe logo. The white band in the middle of the logo will now loosely form a series of smiles. A "smile" will characterize brand Pepsi, while a "grin" is used for Diet Pepsi and a "laugh" is used for Pepsi Max. Also, Mountain Dew will be rebranded as Mtn Dew. The news was first reported in Beverage Digest.

Agency principal Peter Arnell directed calls to PepsiCo. A PepsiCo spokeswoman said that more information on the re-branding will be forthcoming and declined to make PepsiCo executives available for an interview on marketing details. Omnicom's BBDO Worldwide is Pepsi's creative agency of record.

Time for strong action
"It's clear this business is not performing where we would like it to be, in large part because the economic slowdown continues to pressure the North American liquid refreshment beverage category," Ms. Nooyi said during a call with analysts. "It is our belief that, especially, in this economic downturn, we should be investing in the category to get consumers to stay with and some to return to the packaged liquid refreshment beverage category and to our brands, in particular."

PepsiCo said the $1.2 billion will come from its "Productivity for Growth" program, which involves the elimination of 3,300 positions, as well as the closing of six plants.

"While we can't control the macro economic situation, we can enhance PepsiCo's operating agility to respond to the changing environment," Ms. Nooyi said in a statement. "The majority of the savings will be invested in our businesses. A primary focus will be restoring growth to our North American beverage business. At the same time, we will increase our investment in developing markets, make selective investments to continue growing our global snacks business and accelerate our global R&D initiatives to help secure our future innovation pipeline."

During the third quarter, PepsiCo Americas Beverages reported a 2.5% volume decline, with a 4% decline in North America, specifically. North American carbonated soft-drink volume dropped 3%, while non-carbonated beverages declined 5%. Unflavored water and Propel saw double-digit declines during the quarter. "Tropicana will also be differentiated, enabling us to re-engage consumers with this iconic brand."

Gatorade in for a facelift
Pepsi is also focusing its efforts on those areas as well. "We're initiating similar upgrades for the entire Gatorade line, which will have an entirely new contemporary identity, and there will be exciting innovations for both G2 and Tiger and a renewed Propel platform," Ms. Nooyi said.

She added that beverages are more affected than snacks in this economy, because there is a free substitute: tap water. The last 12 to 18 months mark the first time the category is seeing a decline, she said. "Let me be clear, [carbonated soft drinks] are declining between 3% and 4%," she said. "We're saying goal one is to stem that decline and make it decline 1% to 2% and get it to flat. If we did that, that would be enormous. ... It's a critical source of profitability, and it's very, very important that we don't let the slide get out of hand, so that people completely switch out of the assets that are really in the ground."

Ms. Nooyi went on to say that in order for the soft-drink category to grow, sugar must be addressed. "Once we have a breakthrough on a natural low-calorie sweetener that can be used in colas, we have a reason to talk about this category growing again."

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Natalie Zmuda

Natalie Zmuda oversees the CMO Strategy section and is responsible for identifying and analyzing the latest trends impacting chief marketers. Natalie also covers the retail and non-alcoholic beverage categories. She joined Advertising Age in 2008, following five years covering the retail and fashion industries for Conde Nast Publications.